Wow indeed: The unbelievable collapse of Wow Air and what it means for Iceland

July 02, 2019

By Kelly Sandoval

Imagine showing up to Iceland’s Reykjavik Airport after enjoying a fun little getaway to the Nordic island. Your bags are packed, your itinerary is set, and you’re all ready to head home. Only upon arriving at the airport, however, you suddenly find that the airline you’ve booked your flight on has not only decided to cancel all flights without warning but to also announce that it no longer exists. As far as getting your money back, you’re told that if you booked through a European travel agent or credit card, you should check to see if they’ll reimburse you. But if you purchased your tickets directly, especially if you didn’t spring for insurance, there’s a huge possibility you’re out of luck. As for getting home, you should just look into another, likely far more expensive, flight from another airline. As unbelievable as the scenario may sound, it’s exactly the situation that thousands of passengers found themselves in on March 28, 2019, when the budget airline Wow Air suddenly announced its collapse.

The airline responsible for Iceland’s tourism surge

Ever since 2012, Wow Air has been offering budget flights to Europe that seemed too good to be true. Though it’s now turned out that they were in the long run, during the airline’s operation, many travelers scored round trip tickets to Europe or Iceland for $250 or less. A one-way ticket from the U.S. to Europe could even be booked for as little as $49.

Though the airline admittedly offered no frills and charged hidden fees for things like baggage, the offer was still a pretty an amazing one. As a result, the small island nation of Iceland enjoyed a tourism surge that was highly contributing to its recovery from the economic uncertainty it faced a decade ago. In 2018, reports revealed that up to 8.2% of Iceland’s GDP was a direct result of the surge in tourism, with approximately 685,000 people visiting the island from the U.S. alone.

How things went from bad to worse

With fully booked flights and business booming, what went wrong for the budget airline? Former CEO Skúli Mogensen revealed to Business Insider that “We were profitable and successful as a single-fleet low-cost operator up until 2017. So really it’s 2018 that was an abnormally bad year.” The numbers reveal that Mogensen was not exaggerating, as Wow’s losses skyrocketed to $33.6 million in 2018, even though revenue had spiked by 31%.

Mogensen explained that one of his largest mistakes was an attempt to move away from the airline’s budget travel model, which by most accounts seemed to have been its largest draw. While it had traditionally operated with a fleet of low-cost airbuses, Wow got a bit ambitious with the addition of three wider body Airbus A330-300 jets. Mogensen stated that the airline’s attempt to shift from the budget travel model to that of more traditional airlines, only complicated matters.

“We started behaving like a legacy carrier in the sense that we added a premium cabin,” he said. “And again complicating our message, complicating our service delivery, complicating the marketing, and we are going back to our roots as a pure low-cost carrier.”

By the time the airline had realized its mistake and began attempting to return to its low-cost roots, it was simply too late. The company attempted to rally by merging with its former rival Icelandair but ended up having to lay off over 100 employees and cut its fleet nearly in half when the plans fell through. Mogensen’s last-ditch efforts to find initial investors obviously proved less than sufficient, as 1,100 additional Wow Air employees found themselves out of a job as of the March 28th announcement.

What it means for Iceland’s tourist industry

As for what the airline’s collapse means for Iceland’s economy, the effect will definitely not be an easy one, at least initially. The country’s tourist industry, which employees nearly 30,000 people, is on edge as some estimates predict a tourism plunge of up to 16%. Meanwhile, the Icelandic government has issued an announcement ensuring the country’s citizens that a contingency plan has been activated to help offer reassurance for the uncertain economic consequences of the airline’s collapse.

Some citizens, however, are attempting to look on the bright side of the situation, pointing out that Iceland’s tourist boom didn’t only bring positive consequences. In the past decade, the tiny island has also struggled with challenges such as inadequate space along its small, one-way highways and environmental destruction brought on by the rise in tourists. Some tourists have likewise fallen prey to underestimating the country’s challenging terrain and formidable weather, leading to a number of injuries and deaths.

A strange turn of events

In a completely unexpected plot twist, Mogensen recently announced that despite all that’s happened, he still doesn’t plan to give up on attempting to restructure the airline. The former Wow Air CEO has reportedly begun further attempts to secure investors for a new budget airline which, to all appearances, looks a lot like Wow Air under a different name. Mogensen has begun presenting a $40 million dollar pitch in an attempt to secure potential investors for the new airline he’s tentatively calling NewCo. Under his plan, he would take the lead as CEO of the new company, which would operate under the same low-cost travel model that initially made Wow Air a success. But will investors be willing to reinstate a CEO whose last airline continued accepting payments for reservations until 2 hours before announcing its own collapse? At this point, only time will tell.